Aon Reports Third Quarter 2009 Results
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CHICAGO, Oct. 30 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE: AOC) today reported results for the third quarter ended September 30, 2009.
Net income attributable to Aon stockholders was $120 million or $0.41 per share, compared to $117 million or $0.40 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations decreased 25% to $117 million or $0.40 per share, compared to $155 million or $0.53 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations per share, excluding certain items, decreased 6% to $0.65 compared to $0.69 for the prior year quarter, including a $62 million or 69% decline in investment income. Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 12 of this press release.
"Our third quarter results reflect solid operational discipline, as highlighted by a 140 basis point adjusted pretax margin improvement in our Brokerage segment, despite difficult economic and industry conditions and a 69 percent decline in total investment income," said Greg Case, president and chief executive officer. "We continue to make substantial investments across our businesses with the rollout of our Global Risk Insight Platform and the introduction of Inpoint, our insurance carrier consulting business, as well as the addition of key talent in Consulting. As we invest in future growth opportunities, our 2007 and Aon Benfield restructuring programs will continue to deliver additional cost savings as we have achieved less than 40 percent thus far, of the total $589 million of estimated annual savings under these two programs. Lastly, our balance sheet and strong cash flow provide significant financial flexibility to create shareholder value, as highlighted by the repurchase of an additional $125 million of stock during the quarter."
THIRD QUARTER FINANCIAL SUMMARY
Total revenue decreased 2% to $1.8 billion due to a 5% decline resulting from foreign currency translation and a 69% decline in investment income, partially offset by a 9% increase from acquisitions, primarily Benfield, net of dispositions.
Total operating expenses were similar to the prior year quarter at $1.6 billion, including an $82 million favorable impact from foreign currency translation, partially offset by a $45 million increase in restructuring charges and operating expenses from the Benfield merger.
Restructuring expenses related to the 2007 and Aon Benfield restructuring programs were $99 million in the third quarter compared to $54 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for both the 2007 and Aon Benfield restructuring programs are detailed on page 13 of this release.
Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $68 million compared to $29 million in the prior year quarter. Of the estimated restructuring savings in the third quarter, $57 million were related to the Brokerage segment primarily for workforce reduction. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to deliver cumulative cost savings of approximately $240-245 million in 2009 and $467 million of annualized run-rate cost savings by the end of 2010, primarily as a result of additional cost savings opportunities to streamline support functions globally.
Restructuring savings in the third quarter related to the Aon Benfield restructuring program are estimated at $14 million. Before any potential reinvestment of savings, the Benfield restructuring program is now expected to deliver cumulative cost savings of $45-50 million in 2009, $90-100 million in 2010 and $122 million in 2011.
Currency fluctuations in the third quarter negatively impacted income from continuing operations by $0.01 per diluted share when the Company translates prior year quarter results at current quarter foreign exchange rates.
Effective tax rate on continuing operations was 26.7% for the third quarter compared to 27.1% for the prior year quarter. The rate in the third quarter includes an underlying tax rate on operations of 28.0%.
Average diluted shares outstanding decreased to 292.1 million in the third quarter compared to 293.9 million in the prior year quarter. As a result of accounting guidance introduced in the first quarter, share-based payment awards which receive non-forfeitable dividends are now included in the calculation of basic and diluted shares outstanding. Average diluted shares outstanding increased by approximately 3.4 million in the third quarter and 3.6 million in the prior year quarter as a result of these share-based awards being included in the calculation of diluted earnings per share.
During the quarter, the Company repurchased 3.0 million shares of common stock for $125 million. As of September 30, the Company had approximately $605 million of remaining share repurchase authorization.
Discontinued Operations after-tax income was $3 million or $0.01 per share compared to an after-tax loss of $38 million or $0.13 per share for the prior year quarter. Discontinued operations include adjustments to the gains and losses of previously sold companies. The prior year quarter includes the results of Automobile Insurance Specialists (AIS) and post-close adjustments related to the sale of Combined Insurance Companies of America (CICA) and Sterling Life Insurance (Sterling).
THIRD QUARTER SEGMENT REVIEW
Certain noteworthy items impacted pretax income and pretax margins in the third quarter of 2009 and 2008. The third quarter segment reviews provided below include supplemental information related to adjusted pretax income and pretax margin which is described in detail on the "Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted Earnings Per Share" on page 12 of this press release.
RISK AND INSURANCE BROKERAGE SERVICES
-------------------------------------
Third Quarter Ended Less:
(millions) ------------------- Less: Acquisitions, Organic
Commissions, Sep 30, Sep 30, % Currency Divestitures, Revenue
Fees and Other 2009 2008 Change Impact Other Growth
-------------- ---- ---- ------ ------ ----- ------
Americas $541 $557 (3)% (2)% -% (1)%
U.K. 167 182 (8) (9) 5 (4)
EMEA 273 314 (13) (7) (1) (5)
Asia Pacific 111 120 (8) (5) (2) (1)
Reinsurance 379 252 50 (4) 58 (4)
--- --- --- --- --- ---
Subtotal $1,471 $1,425 3% (5)% 11% (3)%
------ ------ --- --- --- ---
Investment
Income 18 48 (63)%
--- --- ---
Total Revenue $1,489 $1,473 1%
====== ====== ===
Risk and Insurance Brokerage Services total revenue increased 1% to $1.5 billion compared to the prior year quarter due to an 11% increase from acquisitions, primarily Benfield, net of dispositions, partially offset by a 5% unfavorable impact from foreign currency translation on commissions and fees and a 63% decline in investment income. Americas organic revenue decreased 1% due primarily to weak economic conditions and a soft market in both U.S. Retail and Canada, partially offset by strong growth in Latin America. U.K. organic revenue decreased 4% due primarily to weak economic conditions and lower new business. EMEA organic revenue decreased 5% as weak economic conditions in continental Europe offset growth in certain emerging markets. Asia Pacific organic revenue decreased 1% reflecting the impact of exiting certain businesses in Japan, partially offset by modest growth in New Zealand and certain emerging markets. Reinsurance organic revenue decreased 4% due primarily to higher cedent retentions in treaty business, partially offset by new business growth globally in treaty placements.
Third Quarter Ended
-------------------
(millions) Sept 30, Sept 30, %
2009 2008 Change
------ ------ ------
Revenue $1,489 $1,473 1%
Expenses
Compensation and benefits 909 910 -
Other expenses 393 380 3
----- --- ---
Total operating expenses 1,302 1,290 1
----- ----- ---
$187 $183 2%
Operating income
Other (income) expense (1) (9) (89)
---- ---- ---
Pretax income $188 $192 (2)%
==== ==== ===
Pretax margin 12.6% 13.0%
Pretax income - adjusted $274 $251 9%
Pretax margin - adjusted 18.4% 17.0%
Compensation and benefits for the third quarter was similar to the prior year quarter including a $48 million favorable impact from foreign currency translation, benefits related to the restructuring programs and lower discretionary incentive compensation, primarily offset by increased operating expenses from the Benfield merger and a $7 million increase in restructuring related costs. Other expenses for the third quarter increased $13 million from the prior year quarter due primarily to a $24 million increase in restructuring related costs, the inclusion of Benfield operating expenses and an $11 million increase in intangible amortization expense related to the merger with Benfield, partially offset by a $18 million favorable impact from foreign currency translation.
Third quarter pretax income decreased 2% to $188 million. Adjusting for certain items detailed on page 12 of this press release, pretax income increased 9% or $23 million to $274 million and pretax margin increased 140 basis points to 18.4% versus the prior year quarter due primarily to benefits of the restructuring programs, lower discretionary incentive compensation and the inclusion of pretax income from the merger with Benfield, partially offset by a $30 million decrease in investment income and higher intangible amortization expenses.
CONSULTING
----------
Third Quarter Ended Less:
(millions) ------------------- Less: Acquisitions, Organic
Commissions, Sept 30, Sept 30, % Currency Divestitures, Revenue
Fees and Other 2009 2008 Change Impact Other Growth
-------------- ---- ---- ------ ------ ----- ------
Services $262 $284 (8)% (4)% 1% (5)%
Outsourcing 46 51 (10) (6) 1 (5)
--- --- --- --- --- ---
Subtotal $308 $335 (8)% (4)% 1% (5)%
---- ---- --- --- --- ---
Investment
Income - 2 (100)%
--- --- ---
Total Revenue $308 $337 (9)%
==== ==== ===
Consulting total revenue decreased 9% to $308 million compared to the prior year quarter due primarily to a 5% decline in organic commissions and fees revenue and a 4% unfavorable impact from foreign currency translation. Organic revenue in Consulting Services decreased 5% primarily reflecting a decline in compensation and human capital consulting. Organic revenue in Outsourcing declined 5% as a previously announced outsourcing contract winds down.
Third Quarter Ended
-------------------
(millions) Sept 30, Sept 30, %
2009 2008 Change
---- ---- ------
Revenue $308 $337 (9)%
Expenses
Compensation and benefits 198 206 (4)
Other expenses 77 79 (3)
--- --- ---
Total operating expenses 275 285 (4)
--- --- ---
Operating income $33 $52 (37)%
Other (income) expense - - N/A
--- --- ---
Pretax income $33 $52 (37)%
=== === ===
Pretax margin 10.7% 15.4%
Pretax income - adjusted $48 $53 (9)%
Pretax margin - adjusted 15.6% 15.7%
Compensation and benefits for the third quarter decreased 4% or $8 million from the prior year quarter including a $9 million favorable impact from foreign currency translation, benefits related to the 2007 restructuring program and lower discretionary incentive compensation, partially offset by a $7 million increase in restructuring related costs. Other expenses decreased 3% or $2 million compared to the prior year quarter due to a $3 million favorable impact from foreign currency translation.
Third quarter pretax income decreased 37% to $33 million. Adjusting for certain items detailed on page 12 of this press release, pretax income decreased 9% or $5 million to $48 million and pretax margin decreased 10 basis points to 15.6% versus the prior year quarter as lower organic revenue was partially offset by benefits related to the 2007 restructuring program and lower discretionary incentive compensation.
UNALLOCATED INCOME AND EXPENSE
------------------------------
Third Quarter Ended
-------------------
(millions) Sept 30, Sept 30, %
2009 2008 Change
---- ---- ------
Operating segment income before tax $221 $244 (9)%
Unallocated investment income & other
revenue 19 40 (53)
Unallocated expenses (30) (34) (12)
Interest expense (32) (32) -
--- --- ---
Income from continuing operations
before tax $178 $218 (18)%
==== ==== ====
Unallocated investment income and other revenue for the third quarter decreased $21 million to $19 million compared to the prior year quarter due primarily to a $27 million decline in certain private equity distributions, partially offset by $10 million of revenue related to the Company's equity ownership in certain insurance investment funds. Unallocated expenses decreased $4 million to $30 million. The third quarter included $3 million of expense related to the Company's equity ownership in certain insurance investment funds. The prior year quarter included $6 million of costs related to the Benfield merger. Interest expense was similar to the prior year quarter at $32 million.
Conference Call and Webcast Details
The Company will host a conference call on Friday, October 30, 2009 at 7:30 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at www.aon.com.
About Aon
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008 and 2009 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007, 2008, and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com.
Safe Harbor Statement
This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, the outcome of inquiries from regulators and investigations related to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws, the impact of investigations brought by U.S. state attorneys general, U.S. state insurance regulators, U.S. federal prosecutors, U.S. federal regulators, and regulatory authorities in the U.K. and other countries, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, our ability to integrate Benfield successfully and to realize the anticipated benefits of the Benfield merger. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission.
This press release includes supplemental information related to organic revenue growth and several additional measures including expenses, margins and income per share, that exclude the effects of restructuring charges and certain other noteworthy items that affected results for the comparable periods. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses and unusual items. The impact of foreign exchange is determined by translating last year's revenue, expense or net income at this year's foreign exchange rates. Reconciliation is provided in the attached schedules. Supplemental organic revenue growth information and additional measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. They should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments.
Investor Contact: Media Contact:
Scott Malchow David Prosperi
Vice President, Vice President,
Investor Relations Global Public Relations
312-381-3983 312-381-2485
Aon Corporation
Consolidated Summary of Operations (Unaudited)
Third Quarter Ended Nine Months Ended
------------------- -----------------
Sept. Sept. Sept. Sept.
(millions except 30, 30, Percent 30, 30, Percent
per share data) 2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- ------
Revenue
-------
Commissions, fees
and other $1,780 $1,756 1% $5,466 $5,493 -%
Investment income 28 90 (69) 81 214 (62)
--- --- --- --- --- ---
Total revenue 1,808 1,846 (2) 5,547 5,707 (3)
----- ----- --- ----- ----- ---
Expenses
--------
Compensation and
benefits 1,119 1,131 (1) 3,267 3,428 (5)
Other general
expenses 424 419 1 1,287 1,333 (3)
Depreciation and
amortization 56 49 14 174 157 11
--- --- --- --- --- ---
Total operating
expenses 1,599 1,599 - 4,728 4,918 (4)
----- ----- --- ----- ----- ---
Operating income 209 247 (15) 819 789 4
Interest expense 32 32 - 87 96 (9)
Other (income)
expense (1) (3) (67) 1 (9) N/A
--- --- --- --- --- ---
Income from
continuing
operations before
provision for
income tax 178 218 (18) 731 702 4
Provision for
income tax (1) 47 59 (20) 212 192 10
--- --- --- --- --- ---
Income from
continuing
operations 131 159 (18) 519 510 2
--- --- --- --- --- ---
Discontinued operations
Income (loss) from
discontinued
operations - (57) N/A 93 1,440 (94)
Provision for
(benefit from)
income tax (2) (3) (19) (84) 38 470 (92)
--- --- --- --- --- ---
Income (loss) from
discontinued
operations 3 (38) N/A 55 970 (94)
--- --- ---- --- --- ---
Net income 134 121 11 574 1,480 (61)
Less: Net income
attributable to
the noncontrolling
interests 14 4 250 25 12 108
--- --- --- --- --- ---
Net income
attributable to
Aon stockholders $120 $117 3% $549 $1,468 (63)%
==== ==== === ==== ====== ===
Net income
attributable to
Aon stockholders:
Income from
continuing
operations $117 $155 (25)% $494 $498 (1)%
Income (loss)
from discontinued
operations 3 (38) N/A 55 970 (94)
--- --- --- --- --- ---
Net income $120 $117 3% $549 $1,468 (63)%
==== ==== === ==== ====== ===
Basic net income
per share
attributable
to Aon
stockholders (3):
Income from
continuing
operations $0.41 $0.55 (25)% $1.74 $1.68 4%
Income (loss)
from
discontinued
operations 0.01 (0.13) N/A 0.19 3.26 (94)
---- ----- --- ---- ---- ---
Net income $0.42 $0.42 -% $1.93 $4.94 (61)%
===== ===== === ===== ===== ===
Diluted net
income per share
attributable
to Aon
stockholders (3):
Income from
continuing
operations $0.40 $0.53 (25)% $1.69 $1.61 5%
Income (loss)
from
discontinued
operations 0.01 (0.13) N/A 0.19 3.14 (94)
---- ----- --- ---- ---- ---
Net income $0.41 $0.40 3% $1.88 $4.75 (60)%
===== ===== === ===== ===== ===
Weighted average
common shares
outstanding -
diluted 292.1 293.9 (1)% 292.2 308.9 (5)%
===== ===== === ===== ===== ===
(1) Tax rate for continuing operations is 26.7% and 27.1% for the third
quarters ended September 30, 2009 and 2008, respectively, and 29.1%
and 27.4% for the nine months ended September 30, 2009 and 2008,
respectively. The underlying tax rate on continuing operations for
2009 is approximately 28%.
(2) Tax rate for discontinued operations is not meaningful and 33.3% for
the third quarters ended September 30, 2009 and 2008, respectively,
and 40.9% and 32.6% for the nine months ended September 30, 2009
and 2008, respectively.
(3) The basic and diluted earnings per share calculation was performed
using the two-class method and included the impact of certain
unvested share-based payment awards that have the right to receive
nonforfeitable dividends.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Third Quarter Ended
-------------------------------------------------------
Less:
Acqui-
Less: sitions, Organic
Sept. Sept. Currency Divest- Revenue
30, 30, Percent Impact itures Growth
(millions) 2009 2008 Change (1) & Other (2)
---- ---- ------ ------- -------- -------
Commissions,
Fees and Other
---------------
Risk and
Insurance
Brokerage
Services:
Americas $541 $557 (3)% (2)% -% (1)%
United
Kingdom 167 182 (8) (9) 5 (4)
Europe,
Middle
East &
Africa 273 314 (13) (7) (1) (5)
Asia Pacific 111 120 (8) (5) (2) (1)
Reinsurance
brokerage
and related
services 379 252 50 (4) 58 (4)
--- --- --- --- --- ---
Total Risk
and
Insurance
Brokerage
Services 1,471 1,425 3 (5) 11 (3)
----- ----- --- --- --- ---
Consulting:
Consulting
services 262 284 (8) (4) 1 (5)
Outsourcing 46 51 (10) (6) 1 (5)
--- --- --- --- --- ---
Total
Consulting 308 335 (8) (4) 1 (5)
--- --- --- --- --- ---
Total
Operating
Segments $1,779 $1,760 1% (5)% 9% (3)%
====== ====== === === === ===
Investment Income
-----------------
Risk and Insurance
Brokerage Services $18 $48 (63)%
Consulting - 2 (100)
Unallocated 10 40 (75)
-- -- ---
Total $28 $90 (69)%
=== === ===
Total Revenue
-------------
Risk and Insurance
Brokerage
Services $1,489 $1,473 1%
Consulting 308 337 (9)
Unallocated
and Other 19 40 (53)
Intersegment (8) (4) 100
--- --- ---
Total $1,808 $1,846 (2)%
====== ====== ===
(1) Currency impact is determined by translating last year's revenue at
this year's foreign exchange rates.
(2) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and
unusual items.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Nine Months Ended
------------------------------------------------------
Less:
Acqui-
Less: sitions, Organic
Sept. Sept. Currency Divest- Revenue
30, 30, Percent Impact itures Growth
(millions) 2009 2008 Change (1) & Other (2)
---- ---- ------ ------- -------- --------
Commissions,
Fees and Other
--------------
Risk and
Insurance
Brokerage
Services:
Americas $1,592 $1,638 (3)% (4)% -% 1%
United
Kingdom 464 546 (15) (14) 4 (5)
Europe,
Middle
East &
Africa 1,030 1,188 (13) (11) - (2)
Asia
Pacific 318 373 (15) (12) (2) (1)
Reinsurance
brokerage
and related
services 1,146 756 52 (6) 58 -
----- --- --- --- --- ---
Total Risk
and
Insurance
Brokerage
Services 4,550 4,501 1 (8) 10 (1)
----- ----- --- --- --- ---
Consulting:
Consulting
services 776 850 (9) (8) - (1)
Outsourcing 140 162 (14) (10) - (4)
--- --- --- --- --- ---
Total
Consulting 916 1,012 (9) (8) 1 (2)
--- ----- --- --- --- ---
Total
Operating
Segments $5,466 $5,513 (1)% (8)% 8% (1)%
====== ====== === === === ===
Investment Income
-----------------
Risk and
Insurance
Brokerage
Services $67 $148 (55)%
Consulting 1 4 (75)
Unallocated 13 62 (79)
--- --- ---
Total $81 $214 (62)%
=== ==== ===
Total Revenue
-------------
Risk and
Insurance
Brokerage
Services $4,617 $4,649 (1)%
Consulting 917 1,016 (10)
Unallocated
and Other 33 62 (47)
Intersegment (20) (20) -
--- --- ---
Total $5,547 $5,707 (3)%
====== ====== ===
(1) Currency impact is determined by translating last year's revenue at
this year's foreign exchange rates.
(2) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and
unusual items.
Aon Corporation - Segments (Unaudited)
Risk and Insurance Brokerage Services - Continuing Operations
--------------------------------------------------------------
Third Quarter Ended Nine Months Ended
------------------------- ----------------------
Sept. Sept. Sept. Sept.
30, 30, Percent 30, 30, Percent
(millions) 2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- ------
Revenue
-------
Commissions,
fees and
other $1,471 $1,425 3% $4,550 $4,501 1%
Investment
income 18 48 (63) 67 148 (55)
--- --- --- --- --- ---
Total
revenue 1,489 1,473 1 4,617 4,649 (1)
----- ----- --- ----- ----- ---
Expenses
--------
Compensation
and benefits 909 910 - 2,678 2,773 (3)
Other general
expenses 393 380 3 1,207 1,221 (1)
--- --- --- ----- ----- ---
Total
operating
expenses 1,302 1,290 1 3,885 3,994 (3)
----- ----- --- ----- ----- ---
Operating
income 187 183 2 732 655 12
Other expense
(income) (1) (9) (89) 6 (14) N/A
-- -- --- --- --- ---
Income before
provision for
income tax $188 $192 (2)% $726 $669 9%
==== ==== === ==== ==== ===
Pretax income
margin 12.6% 13.0% 15.7% 14.4%
Consulting -
Continuing
Operations Third Quarter Ended Nine Months Ended
------------- ------------------------ ----------------------
Sept. Sept. Sept. Sept.
30, 30, Percent 30, 30, Percent
(millions) 2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- ------
Revenue
-------
Commissions,
fees and
other $308 $335 (8)% $916 $1,012 (9)%
Investment
income - 2 (100) 1 4 (75)
--- --- ---- --- --- ---
Total
revenue 308 337 (9) 917 1,016 (10)
--- --- --- --- ----- ---
Expenses
--------
Compensation
and benefits 198 206 (4) 544 612 (11)
Other general
expenses 77 79 (3) 229 247 (7)
--- --- --- --- --- ---
Total
operating
expenses 275 285 (4) 773 859 (10)
--- --- --- --- --- ---
Operating
income 33 52 (37) 144 157 (8)
Other expense
(income) - - - - (1) (100)
--- --- --- --- --- ----
Income before
provision for
income tax $33 $52 (37)% $144 $158 (9)%
=== === === ==== ==== ===
Pretax income
margin 10.7% 15.4% 15.7% 15.6%
Reconciliation of
segment income
before provision
for income tax to
income from
continuing
operations before
provision for
income tax:
Third Quarter Ended Nine Months Ended
------------------------- -----------------------
Sept. Sept. Sept. Sept.
30, 30, Percent 30, 30, Percent
(millions) 2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- -------
Segment income
before provision
for income tax
Risk and
Insurance
Brokerage
Services $188 $192 (2)% $726 $669 9%
Consulting 33 52 (37) 144 158 (9)
--- --- --- --- --- ---
Total
segment
income
before
provision
for income
tax 221 244 (9) 870 827 5
Unallocated
investment
income and
other
revenue 19 40 (53) 33 62 (47)
Unallocated
expenses (30) (34) (12) (85) (91) (7)
Interest
expense (32) (32) - (87) (96) (9)
--- --- --- --- --- ---
Income from
continuing
operations
before
provision for
income tax $178 $218 (18)% $731 $702 4%
==== ==== === ==== ==== ===
Pretax income
margin 9.8% 11.8% 13.2% 12.3%
Aon Corporation
Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted
Earnings Per Share (Unaudited) (1)
Third Quarter Ended September 30, 2009
--------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
-------- ---------- ----------- -----
Revenue as reported $1,489 $308 $11 $1,808
====== ==== === ======
Income (loss) from
continuing operations
before provision for
income tax - as reported $188 $33 $(43) $178
Restructuring charges
(Aon Benfield and
2007 plan) 84 15 - 99
Pension curtailment - - - -
Anti-bribery and compliance
initiatives 1 - - 1
Benfield integration costs 1 - - 1
--- --- --- ---
Income (loss) from
continuing operations before
provision for income
tax - as adjusted $274 $48 $(43) 279
==== === ====
Provision for income
taxes (2) 75
---
Income from continuing
operations - as adjusted 204
Less: Net income attributable
to noncontrolling interests 14
---
Income from continuing
operations - as adjusted $190
====
Diluted earnings per share
from continuing operations -
as adjusted $0.65
=====
Weighted average common shares
outstanding - diluted 292.1
=====
Pretax income margins -
as adjusted 18.4% 15.6% N/A 15.4%
==== ==== === ====
Third Quarter Ended September 30, 2008
---------------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
-------- ---------- ----------- -----
Revenue as reported $1,473 $337 $36 $1,846
====== ==== === ======
Income (loss) from
continuing operations
before provision for
income tax - as reported $192 $52 $(26) $218
Restructuring charges
(2005 and 2007 plan) 53 1 - 54
Anti-bribery and
compliance initiatives 6 - - 6
Benfield costs - - 6 6
Gain on sale of land - - - -
--- --- --- ---
Income (loss) from
continuing operations
before provision for
income tax - as adjusted $251 $53 $(20) 284
==== === ====
Provision for income
taxes (2) 77
---
Income from continuing
operations - as adjusted 207
Less: Net income
attributable to
noncontrolling interests 4
---
Income from continuing
operations - as adjusted $203
====
Diluted earnings per share
from continuing operations -
as adjusted $0.69
=====
Weighted average common
shares outstanding -
diluted 293.9
=====
Pretax income margins -
as adjusted 17.0% 15.7% N/A 15.4%
==== ==== === ====
Nine Months Ended September 30, 2009
-------------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
-------- ---------- ----------- -----
Revenue as reported $4,617 $917 $13 $5,547
====== ==== === ======
Income (loss) from
continuing operations
before provision for
income tax - as reported $726 $144 $(139) $731
Restructuring charges
(Aon Benfield and
2007 plan) 216 21 - 237
Pension curtailment (54) (20) (4) (78)
Anti-bribery and
compliance initiatives 3 - - 3
Benfield integration costs 13 - - 13
--- --- --- ---
Income (loss) from
continuing operations before
provision for
income tax - as adjusted $904 $145 $(143) 906
==== ==== =====
Provision for income
taxes (2) 251
---
Income from continuing
operations - as adjusted 655
Less: Net income
attributable to
noncontrolling interests 25
---
Income from continuing
operations - as adjusted $630
====
Diluted earnings per share
from continuing operations -
as adjusted $2.16
=====
Weighted average common
shares outstanding - diluted 292.2
=====
Pretax income margins -
as adjusted 19.6% 15.8% N/A 16.3%
==== ==== === ====
Nine Months Ended September 30, 2008
------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
-------- ---------- ----------- -----
Revenue as reported $4,649 $1,016 $42 $5,707
====== ====== === ======
Income (loss) from
continuing operations
before provision for
income tax - as reported $669 $158 $(125) $702
Restructuring charges
(2005 and 2007 plan) 159 8 - 167
Anti-bribery and
compliance initiatives 31 - - 31
Benfield costs - - 6 6
Gain on sale of land (5) - - (5)
--- --- --- ---
Income (loss) from
continuing operations
before provision for
income tax -
as adjusted $854 $166 $(119) 901
==== ==== =====
Provision for income
taxes (2) 247
---
Income from continuing
operations - as adjusted 654
Less: Net income
attributable to
noncontrolling interests 12
---
Income from continuing
operations - as adjusted $642
====
Diluted earnings per share
from continuing operations -
as adjusted $2.08
=====
Weighted average common shares
outstanding - diluted 308.9
=====
Pretax income margins -
as adjusted 18.4% 16.3% N/A 15.8%
==== ==== === ====
(1) Certain noteworthy items impacting pretax income in 2009 and 2008 are
described in this schedule. The income (loss) from continuing
operations before provision for income tax, diluted earnings per
share from continuing operations and related margins shown with the
caption "as adjusted" are non-GAAP measures.
(2) Tax rate for continuing operations is 26.7% and 27.1% for the third
quarters ended September 30, 2009 and 2008, respectively, and 29.1%
and 27.4% for the nine months ended September 30, 2009 and 2008,
respectively (U.S. GAAP). All reconciling items are tax effected
at the above rates, except for the nine months 2009 reconciling
items, where the U.S. GAAP effective tax rate was adjusted to 27.7%
to exclude the impact of the 40% tax rate applied to the $83 million
U.S. pension curtailment gain.
Aon Corporation - Restructuring Plans (Unaudited) (1)
2007 Restructuring Plan
By Type: Actual
-------------------------------------
Full Full Third Nine Total
Year Year Quarter Months Incurred Estimated
(millions) 2007 2008 2009 2009 to Date Total
---- ---- ---- ---- ------- -----
Workforce reduction $17 $166 $48 $118 $301 $470
Lease consolidation 22 38 29 56 116 145
Asset impairments 4 18 3 7 29 38
Other costs associated
with restructuring 3 29 4 11 43 47
--- --- --- --- --- ---
Total restructuring
and related expenses $46 $251 $84 $192 $489 $700
=== ==== === ==== ==== ====
By Segment:
Risk and Insurance
Brokerage Services $41 $234 $69 $171 $446 $645
Consulting 5 17 15 21 43 55
--- --- --- --- --- ---
Total restructuring
and related expenses $46 $251 $84 $192 $489 $700
=== ==== === ==== ==== ====
Benfield Restructuring Plan
By Type:
Operations
---------------
Purchase
Price Third Nine
Allocation Quarter Months Estimated
(millions) (2) 2009 2009 Total
----------- -------- ------- ---------
Workforce reduction $51 $6 $31 $97
Lease consolidation 24 7 11 47
Asset impairments - 1 2 8
Other costs associated
with restructuring 2 1 1 3
--- --- --- ---
Total restructuring
and related expenses $77 $15 $45 $155
=== === === ====
(1) In the Consolidated Summary of Operations, workforce
reductions are included in "Compensation and benefits,"
lease consolidations and other costs associated with
restructuring are included in "Other general expenses,"
and asset impairments are included in "Depreciation and
amortization."
(2) Represents updated estimate of liabilities to be
incurred within one year of the acquisition date (11/30/08).
Aon Corporation
Condensed Consolidated Statements of Financial Position
As of
------------------------------
(millions) Sept. 30, 2009 Dec. 31, 2008
---------- -------------- --------------
(Unaudited)
ASSETS
--------
CURRENT ASSETS
Cash and cash equivalents $580 $582
Short-term investments 602 684
Receivables 1,844 1,990
Fiduciary assets (1) 9,551 10,678
Other current assets 349 355
Assets held for sale - 237
--- ---
Total Current Assets 12,926 14,526
Goodwill 5,957 5,637
Other intangible assets 763 779
Fixed assets, net 453 451
Investments 297 332
Other non-current assets 1,245 1,215
----- -----
TOTAL ASSETS $21,641 $22,940
======= =======
LIABILITIES
--------------
CURRENT LIABILITIES
Fiduciary liabilities $9,551 $10,678
Short-term debt 12 105
Accounts payable and
accrued liabilities 1,377 1,560
Other current liabilities 277 314
Liabilities held for sale - 146
--- ---
Total Current
Liabilities 11,217 12,803
Long-term debt 1,998 1,872
Pension, post employment
and post retirement liabilities 1,245 1,694
Other non-current liabilities 1,051 1,156
----- -----
TOTAL LIABILITIES 15,511 17,525
------ ------
TOTAL STOCKHOLDERS' EQUITY 5,990 5,310
Noncontrolling interest 140 105
--- ---
TOTAL EQUITY 6,130 5,415
----- -----
TOTAL LIABILITIES AND EQUITY $21,641 $22,940
======= =======
(1) Includes short-term investments: 2009 - $3,440; 2008 - $3,178.
SOURCE Aon Corporation
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